How Are Settlements Paid?

So you've finally reached settlement in your case, but how do you get your money? Settlement payments can be made in a number of different ways: lump sum payments, installments, or even in loose change.

You may have seen the story this week of Andres Carrasco, 76, who was less than pleased to receive a $21,000 settlement -- all in coins -- from an insurance company he'd sued for assault. The Los Angeles Times reports that Carrasco had initially expected a check -- only to receive more than a dozen paint buckets filled with change.

So how exactly are settlements supposed to be paid?

Structured Settlements

You may have heard of structured settlements from sketchy-looking TV or radio ads offering to get plaintiffs lump sums instead. Ignoring what you may have heard, structured settlements are a common way of delivering large settlement funds to injured parties over an extended period of time. This method of payment can ensure that an injured plaintiff receives regular payments for life, or a steady stream of income over a few years.

While it may seem nicer to receive the entire amount in a lump sum, structured settlement payments may reduce tax liability for settlement payments entirely. Many state laws also guarantee that even a bankrupt insurer will continue to cover structured settlement payments.

Settlement payments may also be made in one lump sum, in which the majority (if not all) of the settlement funds are paid at once to the injured party. A lump sum is often desirable because it guarantees the entire settlement gets to the intended party, even if it is in nickels and dimes as with Mr. Carrasco.

Many settlements combine structured settlement payments with lump sums, giving victims an initial injection of cash followed by a steady flow of financial support.

Class Action Settlements

Large class action settlements may be paid out of a general fund, with a claims administrator determining how much each claimant will receive. Sometimes this is as simple as filling out an online questionnaire and providing contact information. In more serious cases, it may involve evidence of serious injury to receive a greater payout.